Worldwide debt increased to $281 trillion and worldwide debt-to-GDP ratio is now over 355%. The Institute of International Finance’s global debt monitor estimated government support programs were half of the rise, while global firms, banks and households added $5.4 trillion, 3.9 trillion and $2.6 trillion respectively.
During the 2008-2009 financial crisis the debt-to-GDP jumped 10 percentage points in 2008 and 15 percentage points in 2009. In 2020, the world increased debt by 35 points from 320 to 355%. The debt spending is still increasing in 2021.
Global government debt is expected to increase by another $10 trillion this year and surpass $92 trillion. It is highly likely total world (government, corporate, bank and household debt will pass $300 trillion by the end of 2021.
What Does All of This Debt Mean?
There is no meaningful country or region that does not have a lot of debt. The US, Europe, Japan and China all have a lot of debt.
There has been no political will to actually pay down debt. The best achievement was to hold debt to GDP stable for a decade.
The best debt to GDP ratio for the USA was at the end of the 1970s. Public debt in 1980 was about 30%. this was the government only portion. There had been a mostly steady decline from the 80% level of the Great Depression and then the 130% level at the end of WW2.
The post-WW2 economic boom cut the Debt to GDP levels nearly in half by 1955.
Despite the high debt of WW2 there was no shift to another currency. The global finance system did decouple from the gold standard.
The best path forward from the current situation is to get a lot of economic growth from a technological boom. There will also be semi-coordinated efforts by all world governments to water down the debt.
Inflation will be hidden with false statistics. There will be a lot of asset inflation. Houses and stocks will increase. Hard currency will deflate. This is part of the scenario where cryptocurrency continues to strengthen.
It would seem individual financial strategy would be to get on the same side as the economic solution where big government, big banks, big companies and big tech engineer some plans where they win.
SOURCES- Reuters, IIF
Written By Brian Wang, Nextbigfuture.com
Brian Wang is a Futurist Thought Leader and a popular Science blogger with 1 million readers per month. His blog Nextbigfuture.com is ranked #1 Science News Blog. It covers many disruptive technology and trends including Space, Robotics, Artificial Intelligence, Medicine, Anti-aging Biotechnology, and Nanotechnology.
Known for identifying cutting edge technologies, he is currently a Co-Founder of a startup and fundraiser for high potential early-stage companies. He is the Head of Research for Allocations for deep technology investments and an Angel Investor at Space Angels.
A frequent speaker at corporations, he has been a TEDx speaker, a Singularity University speaker and guest at numerous interviews for radio and podcasts. He is open to public speaking and advising engagements.
Example of Expropriation Through Inflation: You have R100 out of R1,000 which is in the system, your R100 is worth %100 of R100, the state prints R9,000 with a total money supply of R10,000 now your R100 is worth 1% of its original value, the state has just stolen 99% of your value.
“But how is this legal plunder to be identified? Quite simply. See if the law takes from some persons what belongs to them, and gives it to other persons to whom it does not belong. See if the law benefits one citizen at the expense of another by doing what the citizen himself cannot do without committing a crime.” – Frederic Bastiat
http://bastiat.org/en/the_law.html
Everyone is so disillusioned with the fact that BITCOIN is going up, its not, i is the Dollar and other FIAT currencies which are losing value. Bitcoin will be worth upwards of $400,000
The US dollar has lost some 98.7% of its value since 1920, that is what money printing has done
https://seekingalpha.com/article/4356484-time-to-short-u-s-dollar
Spencer Schiff (18 years old) told his father and Gold bug Peter Schiff
“Your understanding of money is flawed. You think the key determinant of a money’s soundness is possession of ‘intrinsic value’, a nonsensical concept. What differentiates sound money from fiat money is the former’s emergence on the free market rather than by coercive State edicts.
Why were reserves almost negligible until 2009? Why I they so high now? Who is holding the reserves, and where did they get the money from?
I spent a month in the USSR before it all fell apart. They had bread.
This isn't to say it was good bread. (Though maybe that suited their tastes? Food is difficult to judge like that.) And they certainly didn't have the range we take for granted. And they clearly ran short at times.
But command economies do function. We have thousands of years of evidence that a group of guys with weapons can get a bunch of people to follow simple instructions.
We just also have several hundred years of experience showing that there are much better ways.
(Think about it, if the totalitarians didn't function AT ALL, we wouldn't have anything to worry about. They'd collapse as soon as they ate through their starting food stocks.)
Oil supply shock: yes, I hope that my provocative tone was perceivable; also, demand was going up, with a few billion people starting to come out of poverty, etc… but you got the point, I hope.
Sudokus: if I got it right (might as well not), mining is sort of keeping the network alive. If you hit the cap (21m for Bitcoin), there isn't as much of an incentive to mine = keep updating the ledger. Btw, it takes 330MW to mine a bitcoin (about $12k at utility-scale prices), as energy requirement to mine a new coin go up, price has to keep going up. until the laws of physics or a planetary disaster or a combination thereof stop the show. This is sub-optimal, even if some enthusiast would boast that "it's not a bug, it's a feature".
I'm positive on blockchain technology in general (think about a public, impossible to counterfeit chain-of-title for property or criminal record), but money itself is too much of an important thing to leave it to the amateurs: even if it wasn't a flaw in design or disruptive new tech to bring it down, governments will crack up on anarchist cryptos before they steal the show, even if that means creating something approximate (CBDC).
I think that a war in the middle East, collapse in US oil production, combined with the expansion of OPEC and deliberate oil production restrictions might have had something to do with the early 1970s oil price spike.
It wasn't just dollar goes down, so commodities go up. If it was we should have seen other commodities shoot up at the same time and to the same degree.
Having said that, I agree that there doesn't seem to be any fundamentals underlying cryptocurrencies. They aren't even Tulips in terms of underlying assets.
I'm not sure what you mean by
That ruins mining as a (completely pointless) industry, but the established coins are still highly limited in number. It won't flood the world with infinite bitcoin or anything.
As Brain Mentioned in another post its all about Velocity. None of this hot money is actually reaching the economy. Hence no inflation. It is sitting in virtual bank vaults as reserves. https://fred.stlouisfed.org/series/TOTRESNS
I would say they "tried" to dictate. Bread wasn't as simple as you would think. No one from the collective farm manager on down had any incentive to produce the most grain or bread possible. Every thing came from the central planning. Tractors, fertilizers, the types of crop you would grow. No one was incentivized to use any of these scare resources efficiently. Even the leader of USSR was amazed at a simple American super Market. https://thefederalist.com/2019/11/13/how-a-russians-grocery-store-trip-in-1989-exposed-the-lie-of-socialism/
If we interpret "international assets" as companies then yes, this whole scheme falls apart.
If we interpret "international assets" as stuff like Antarctica and the Arctic, the seafloor of the Pacific Ocean, maybe the Moon. Then it's not completely ridiculous.
Of course, as soon as you've done that, you now have to have people go in and actually exploit those assets, otherwise you are back at the whole printing money not backed by anything.
IIRC, the USSR DID dictate actual farmers growing actual grain to bake actual bread.
Bread is nice and simple, and this mostly worked.
Of course "mostly" isn't quite good enough when it comes to stuff like bread.
And it turns out that by 1990 there was a lot of stuff that wasn't "nice and simple" and hence much more difficult to just dictate.
All those baby boomers who have all their life savings in bonds so they can afford to eat human food over the next 40 years of retirement. All the insurance companies with much the same investment scheme.
I'm not interpreting Mark's comments the same way you are.
It looks to me like, (taking corporate debt because it's more straightforward) if Company A sells $1M in bonds to company B, then Company A owes $1M dollars.
BUT if company A also buys $1M in bonds from company C, then the net debt of company A is zero.
If necessary, they can sell the bonds from company C to pay back company B. They can probably go to company B and do a deal, swapping out one set of bonds for another.
Now company C can't offset one debt to another, because they only have a debt they owe, nothing is owed to them.
Well said. I'm not sure how the government is holding down the inflation rate. Given the amount of money it's spending one would think inflation would be higher. Need to do some research on that.
Lastly, I did want to comment on the statement you made that
"But in the same way we can suspend laws and rights and institutions if the situation is dire enough (State of Emergency)"
I think King George III said something similar in 1775. Eight years later he lost the war that we fought to end his tyranny. What you are proposing smacks of the same thing. Societies are based on the rule of law. When folks talk about suspending rights, other folks like me start thinking about fighting to protect those rights.
A UN fiat currency would essentially be the equivalent of the US (or any country for that matter) simply printing tons of money. See "German hyperinflation after World War 1" for a case study of what happens when a govt does that sort of thing.
Also, if you base the UN currency off the value of international assets, then you actually are just creating more debt. Let's say I own an international company worth 1 million dollars. You create a UN currency based off that value. Since I own the company you now owe me that million because I own the asset. In essence all you've done is take out a million dollar loan from me. You could get around that by seizing the asset, but of course that would be theft. Historically, govt's have tried that sort of thing in the past but it never works.
I should also add that international assets, i.e. corporations, companies, etc, are already traded on the stock market. In effect they already are a type of medium of exchange (as in a share of stock). Thus I can't see how you could create a currency based on stock shares without illegally seizing those shares from their owners, i.e. folks like me.
No, I don't have $1 in negative debt. You owe me a dollar. By law if you don't pay me back on time I can sue you in court to seize your assets equivalent to that $1. I can also place a lien on any property you own and if you try to sell it I can recoup the debt from the proceeds from the sale.
You own the house once you pay off the mortgage. It's pretty simple. BTW the whole etymology of the word is "death pledge", but I have no clue why that's important to the discussion. My advice to you is to pay your debts so you don't kicked out of your house by the local sheriff as you yell "but wait the total debt is zero!" That ain't gonna work.
Surely there wasn't, because the US had the biggest GDP and oil/commodities were traded in dollars. Having the biggest GDP sort of implies for a country to have its currency as the global reserve currency. You've been boasting about China's GDP surpassing the US soon for a while already, are you ready for its consequences?
They strengthen in fiat terms, but what's the point of calling them currencies then? You can't settle trade with them and there are no sovereign bonds denominated in crypto. It's just a bubble doomed to pop when a quantum computer cracks all these sudokus all at once or when the governments of this planet go after it. If no contract denominated in crypto was legally enforceable, what would be the point of holding them?
In 1971 gold convertibility was abandoned and mighty inflation followed. Was it because of the oil shock? Not really: oil prices in dollars went up because the value of dollars went down. Inflation "inflates" GDP too and is a boon for debtors: no wonder debt/GDP ratio in the 80s was low! Creditors paid for that with reduced purchasing power in real terms!
Now global debt/GDP is too high and we're about to do the same all over again.
China is already by some measures(PPP) nr 1 and for sure will be largest economy in $ soon.
800M(China) vs 160Million workforce (US)
But to really become superpower nr 1 they still have some catching up in cutting edge technology and science output. The gap is still big. How long it will take China to close it? We don't know. 2, 5, 10 years? As long as US will be increasing R&D budget and inviting smartest people, it has chance to be nr 1 longer. But if US will ignore tech and science, China will have an easy job and judging by her current momentum, will catch up in 1-3 years.
Its the down vote you have that gets me. I guess I shouldn't be surprised that people like this exists. I am just old enough to remember Baghdad Bob holding a press conference about America's defeat while American tanks rolled in about 300 yards away. Really the only question at that point is do people believe their own lie? I shall assume, yes they do, which earned you a down vote.
I'll give you this. Your idea on economics is interesting. I can agree that finance is not physics to an extent. I think the disconnect is what money is. Money is only a claim on some ones work, or owned capitol. Call it debt jubilee, suspension of normal finance models etc. Work and capitol are immutable in the system, like gravity on the earth. Let me give you two examples. Let's say tomorrow the government in America decides rather than send 1000's of dollar for a third stimulus check they are just going to cut a check for $10 million to every US citizen. With the idea being every one can retire and live a life of luxury. But at a base level gravity still exists, you need a physical garbage man, water treatment guy, power generation, on and on including the entire economy. In a some what free economy all the virtual green pieces of paper would be worthless and inflation would take place correcting the imbalance. Other forms of exchange like gold or crypto would take over most likely. Second example, the government owns most of the economy and dictates prices shall not rise. In the case of the USSR they dictated the price of bread in 1990. What you can't dictate is actual farmers growing actual grain to bake actual bread. The gravity here would be the permanent bread lines. So I can agree that finance is not immutable physics over the short term. But finance/economy have gravity, sure you can jump up or jump off a cliff to defy gravity for a time. But its still there.
No big whoop. We'll just inflate the problem away.
No default. No Greek or argentina or pakistan or russia-like default. All creditors are paid. Paid from the UN's $100T (doesn't yet exist) covid-debt amnesty fund – it could be based on the appraised value of international assets not yet defined, but doesn't need to be. (i was primarily considering covid debt not necessarily pre-existing sovereign debt). And of course this doesn't exist and is unlikely to ever exist, but it is in theory possible – and that's all that matters. All parties agree that the UN fiat currency has value and that's good enough. Of course, we should be all good citizens and live within our means and respect the financial responsibilities and conditions and balance sheets. But in the same way we can suspend laws and rights and institutions if the situation is dire enough (State of Emergency), so also should we be able to modify/ restrict/ alter the Contracts and institutions of the Financial sector. Finance is not physics. Its an artificial construct that has its own internal consistencies and logic – but that does not make it sacred. Its only a tool and if the tool is more trouble than its worth, change it.
If I owe you a $1 then you have a $1 in negative debt. Total debt is $0.
You do know that if I have a mortgage then I don't really own the house. BTW, the "mort" in mortgage means death.
Hold on tight for the roaring 2020s:
https://marker.medium.com/will-the-2020s-really-become-the-next-roaring-twenties-5a05ce995499
Neuralink FTW.
"Beware the Id" . Neuralink FTW.
The bank takes a loss, which is a situation that any business can face. That said, in reality the bank is going to sell the house at the market rate, which these days is usually 100% of the value of the mortgage. Thus, the bank actually makes money on the deal since the debtor made some mortgage payments which the bank keeps plus the fees it charged for the loan itself. That's one of the reasons that mortgage interest rates are so low – the strength of the real estate market means that banks can normally sell a defaulted property for the value of the loan.
So basically you are advocating that governments default on their debt. The problem is, as the Greeks found out during Grexit, that once you seriously consider that option all sources of credit dry up because investors are no longer willing to buy govt debt. With no more money coming in, the economic system collapses because it can't function without more credit. That's the danger of massive govt debt loads – investors have to be confident they will be repaid or they will stop buying govt debt. And that's why the Greeks didn't default and instead cut their spending and restructured their debt.
The US is essentially in the same situation – it can't finance its own budget without debt. Tax revenues are not sufficient to cover its budgetary costs. Thus it has to constantly borrow money to cover the deficit.
It's crazy. Fiat currency is not an effective antiviral, but it can disguise economic distress.
There are many parallels between our time, and the 1920s. There are many parallels between the US and Weimar Germany. In the past monetary inflation has always been followed by consumer price inflation. Anyone here know how fractional reserve banking works here in the US these days?
Q squared eh? You think we should just follow the plan?
I'm not a financial person, but I understand your concerns. Everything has to balance. Everything has to be fair and reasonable. In a standard and modern world.
But honestly – No it doesn't. Its a State of Emergency – World scale. Finances are not Physics – we can suspend/ bend/ re-invent The Rules. Economics is full of 'externalities'. We can come up with certain times in history where it would be reasonable to just 'write it off' and then offer creditors unbacked value in exchange. Countries offer unbacked 'fiat' currency all the time – cryptocurrency is fundamentally unbacked. This is a dangerous and unprecedented move and should ALMOST never be done – which isn't to say we shouldn't do it. And yes this is free money. And yes, the circumstances should be so unprecendented (such as pandemic or asteroid strike) as to not happen more than once within a person's lifetime. And yes this should be done unilateraly and worldwide simultaneously by a UN level decision with input from All. And No it will not shake confidence in the financial system. But possibly many will try to take advantage.
Now is such a time (well in 6 – 8 months when the bills come rolling in).
Maybe, but what happens if the bank forecloses on a house, but it sells for 50% of the outstanding debt?
I'll check it out! I have done some reading on the Singularity in the past. It's an intriguing concept, but I don't think it's close to coming to fruition in the near future. I will say though that I completely agree with you that humanity will undergo radical change in the next several centuries and systems are going to collapse/undergo colossal shifts. I just hope we are both around to see it!!!
Nice talk
I will check out this movie
If you're into Singularity I recommend you this website/subreddit, if you're not already there
https://www.reddit.com/r/singularity/
In the "Start Afresh" scenario where does the money come from to reimburse the holders? For example, in the US govt's case it is $28 Trillion in debt. It has an annual revenue of $3.5 Trillion. Where is it getting the remaining $24.5 Trillion to reimburse the holders?
In reality these "holders" are really creditors. And creditors want their money plus the interest they were legally and contractually guaranteed when they bought the govt debt. Otherwise they wouldn't have bought it in the first place if they knew the govt was going to default on it. That's what people don't understand – all this money they are getting in COVID checks is really coming from investors in govt debt. If the govt doesn't pay its debts, then investors wont buy it. Which means no more COVID checks. And worse, it also means cuts to medicaid, medicare, and social security because the govt was already financing those programs through debt even before COVID came around.
Agree, but I would offer that one thing has remained constant during the last 50,000 years of human technological advancement – us. Our technology has changed. Same for cultures, ideologies, systems of government, etc. But we humans remain the same. We are still motivated by the wants, desires, and needs that reside within our Ids and our Egos. That's what causes all of our problems as a civilization – our constant desire for whatever: money, power, sex, attention, success, etc. Even if we become immortal all those needs/wants will still be within us. That's the message of "Forbidden Planet".
Conceivably we could evolve into something else, but then we risk our own demise. After all, if we eliminate desires and/or emotions, then we remove the motivation to live.
Like you said, it's just an assumption.
The truth is, we can't predict what will happen after the Singularity.
I am sure one thing, current system/s will collapse, we will have something new. It's also possible that there will be Singularity in human nature, so our current way of thinking, probably including some emotions will become thing of the past.
My other guess is, if Singularity tech can figure out aging process and make us biologically immortal, so we can live as long as we want( you will be able to commit suicide anytime, if you for some reason don't want to exist more than million/billion/trillion years). As immortal beings we may chill a bit and don't have this mindset of mortals to accumulate as many things as possible, as fast as possible, becase we only have so few years here and want spend them in best level of comfort possible
We will see, I hope quite soon
How do you know it won't grow proportionally? And how do you know that people will have everything they need? Moreover, how do you know that people will have everything they want? Wants are relative and ever changing. If you look at what people wanted 100 years ago and what they want today it's easy to see that expectations have grown exponentially.
You're making an assumption that people will be satisfied with what they have. That's not how the human ego works. No matter how technologically advanced we become, there will always be haves and have nots. For example, "that's no fair, Billy has two planets but I only have one."
There will always be some type of medium of exchange. If not money, then energy, or matter. After all, if you want to turn dirt into something else, you first have to find and possess the dirt. And even dirt can be in short supply when your neighbor already used a planet's worth to build his own ringworld.
Also, I strongly recommend you check out the 1950s movie "Forbidden Planet". It's a cautionary tale of what happens to a civilization that achieves the ability to manipulate matter. Always remember to "Beware the Id".
It's creditors – namely investors who buy government bonds and treasury bills. Anyone can buy a government issued bond or treasury bill. Private investors, corporations, foreign govts.
When the US govt decides it wants more money it has 3 ways to get it: raise taxes, go into debt, or print money. Raising taxes is almost impossible given the political situation, and printing money causes all kinds of bad effects such as hyperinflation, devaluation of the dollar, etc.
So it has become pretty standard for the govt to go with the "debt" option. Generally speaking the way it works is that the govt gets money by selling bonds or treasury bills to investors. For example, let say it sells a bond to me for $10,000. That means I give the govt $10,000 and it gives me a bond – which is really a promise from the govt to give me back my $10,000 plus interest. Now let's say the interest rate is 1% and the term of the bond is 1 year. At the end of year the govt owes me $10,000 plus 1% interest or a total of $10,100.
It all seems pretty simple and generally is not a problem as long as the debt amount remains within a certain range, say 3% of GDP . Now consider that the current US debt is $28 Trillion or 133% of GDP. The interest on that alone is billions of dollars and it is skyrocketing.
Truly a bizarre concept: Debt. The idea of only having access to something wanted based on ability to pay for it in smaller chunks over time, based on a rating of debt worthiness, influenced by going rates and macro-economic concepts of easy money, influenced by the availability and temperment of Lenders, etc. Truly an idea that has an endless amount of financial infrastructure, grand micro- and macro-economic theory, Political Power, and untold piles of 'rent-seeker' labour behind it. That being said, it has also provided a balancing method to moderate spending, determine need and availability of resources, and leverage untold other projects. I am constantly fascinated by claims for debt forgiveness, amnesties, lenders of last resort, 'calls for refusals to service debt as a political movement', and other such methodologies for 'distorting' this 'market' – for better or worse. A huge balancing act over time, due for a reckoning, methinks. What would the world be like if all Sovereign debt were forgiven — with all holders ALSO being reimbursed? The magical, one-off, super-duper-force-majeure of Starting Afresh. A sudden, one-time, and unreproducible injection of untapped resource without coverage. We could pretend that a $10T asteroid hit the Earth with proceeds evenly distributed to All. A world without Sovereign Debt. huh. Of course, I imagine 75% of the world would over-spend their 'real budget' in the immediate year after – ho-hum, the desire for more than income.
It will explode globally eventually for the biggest collapse ever, the question is when? And will China come out as the global superpower after it has already managed to handle the Corona epidemic better? We are not going to have another chance, The money that we are spending now to come out of the current crisis has to be spent very carefully, here and globally so it yields maximum economic growth and quick debt ratio decline. First on the list is spending on quick global immunization, improved immunization against mutations and quick detection so we can leave the pandemic as fast and as far behind us as possible. And also roll back relief programs as fast as possible.
Call it covid related debt! It is lockdown debt
To whom is US gov paying that debt? How is this working
Yes, but what I meant was, debt will not grow proportionally to size of gdp.
After reaching average standard of living of todays billionaires, people simply will have everything they need easily. Going even further, the concept of money, capitalism will for sure dissapear shortly after Singularity. Would you care about money if you will be able to manipulate matter and basically create whatever you want from 'dirt' with your thoughts? (due to tech like: super advanced Brain Computer Interface + Super advanced manipulation of matter at atom or even subatomic scale using this neuralink or whatever we will call it)
So theoretically, if due to achieving Artificial Super Intelligence, Singularity, our gdp will grow 10 000x in 20 years,this 26T or so debt will be 1/10 000 of gdp instead of being similar size as whole US GDP.
Debt against whom?
Mars?
"The best path forward from the current situation is to get a lot of economic growth from a technological boom." We also need to replace grid with power beaming and H economy. Not to mention Space Solar. These are all profitable things.
Right now debt is very cheap which is why it's sky rocketing. The govt is able to finance it easily because it can borrow at such low interest rates. The question is how long will those low rates last? Another good question is how much debt can the govt take on and still afford to pay the interest? As the amount of debt increases so will the percentage of the federal govt's budget that goes to service it. At some point the debt will become so large that the cost of interest payments will force cuts to other parts of the budget. At that point the govt will no longer be able to borrow and it will be forced to cut the sacred cow entitlement programs that the public has come to consider a right. It will be interesting to watch how that all unfolds.
Neither productivity or wealth creation have an effect on debt. You could conceivably triple (or plug in any number you want here) current productivity and still have massive debt. The key is not how productive a society is or how wealthy, rather it's the balance sheet that matters. If you spend more than you gather in revenue then the end result is debt. For example, in 2020 the US Govt collected $3.42 Trillion in revenue, which is a TREMENDOUS sum, and yet in the same year it spent over $6.5 Trillion. The result – another 3 trillion in debt added to the $25 Trillion of debt the country had already accrued over the last several decades. The US is an incredibly productive and wealthy country, and yet it is in massive debt. The moral of the story is to live within one's means, or as Benjamin Franklin once said, "he that goes a borrowing, goes a sorrowing."
There is no such thing as positive and negative debt. If you owe someone money, it doesn't magically get cancelled out by some other debt. Where did you come up with that notion? Whatever you borrow you must pay back to your creditors. If you fail to do so then they can seize your assets. For example, the bank will foreclose on your mortgage if you don't make your monthly payments on time. There's no "cancel" option in your loan agreement.
I wouldn't worry about debt. We're very close to AGI,ASI,Singularity. Tech is advancing exponentially and even this process is speeding up. We should reach that tech, some kind of Singularity this decade, early 2030's at the latest. After that, wealth creation, productivity will shoot up. There are some projections saying that after ASI, world GDP could double every few weeks or even days instead of 15 years or so(today's speed)
It might not be obvious but total debt is always zero. What I owed is owed to someone else. I have positive debt that is cancelled by his negative debt.